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This analysis shows that the factors influencing the successful commercialization of Segway, which have been derived from a literature review (not supplied in this post), have a convergence to already established theoretical concepts. Concentrating on Segway, there have been two significant factors distinguished that influence the successful commercialization, namely the ‘lack of legitimacy’ and the ‘negative consumer perception’. The factor ‘amount of resources’ has a positive influence and the factor ‘network organizational form’ has a moderate influence on the successful commercialization of Segway.

First, we would like to take a step back and look at the short but intense history of the company. In 1999 the inventor Dean Kamen founded the Segway Inc. company in order to fulfill his vision of developing a zero-emission transportation vehicle that can be used on pedestrian sidewalks. This project took Dean Kamen over three years of patenting work and technical development together with the help of the University of Plymouth. On the third of December in 2001, the first Segway Human Transporter was unveiled on the ABC News morning program ‘Good Morning America’. The year 2001 was also accompanied by the peek of the dotcom bubble that soon was up to burst, which could explain the mindset of investors that were very high-tech oriented even though not all of them were experts in this field.

It did not take long and the hype also caught Segway Inc. After having attracted much attention because of the technologically brilliant invention, investors soon saw a possible uprising of a radical innovation (see also 1.3.1; Garcia & Galantone, 2002). One of the first investors was John Doerr who was speculating “it will be the fastest company to reach $ 1 billion in sales” (Time.com; 2001), even Amazon.com chief Jeff Bezos and Apple’s Steve Jobs seemed to be convinced and invested in Segway Inc. Those ‘big names’ of the industry were also a way for Segway to achieve legitimacy to gain even further investments. There are no official numbers of how big those investments were, but it is estimated that altogether Segway Inc. has received around $176 million US dollars of initial investments for product development (usatoday.com, 2006).

John Doerr was so convinced of the concept that he said to the Time Magazine in 2001, that “it would become more important than the internet” (Time.com; 2001). The following years the company did not fulfill the expectations and performed badly, mainly because the invention was great but the product too expensive to attain a critical mass as the authors Oliver et al. (1985) classified as being “the key to predicting the probability, extent and effectiveness of collective action” (Oliver et al.,1985), so in other words: that the market would accept it. After years of declining sales and bad financial records, the company has been sold in beginning of 2010 to the British millionaire Jimi Heselden who still was convinced of the invention. But like a tragic metaphor, after continuous losses, Jimi Heselden died the same year in September by falling of a cliff on his Segway (bbc.com, 2010).

1.1 Failure or success?

So if we take a more scientific approach to the analysis of the Segway case, then we need to define first of all if the project really was a failure as we have generically concluded above. When we apply the core measures of new product success by the authors Hultink and Robben (1995) we should have a clearer picture. The authors define in their article 16 core measures of new product success, of which four factors are being perceived as being equally important for short-term and long-term success, namely: customer satisfaction, customer acceptance, meeting quality guidelines, and product performance level (Hultnik and Robben, 1995). We want to guide ourselves by those main four factors because they are not being time-bounded. If we transcribe those factors to the Segway case, it can be seen through the analysis of data, that Segway misses to fulfill any of the four core factors of measuring success as to be seen in table 1.

Table 1 – Measuring new product success

Factor

Influence

Why

Customer satisfaction

Negative

High acquiring price since the beginning ranging from $ 5000 – $ 7200 US dollars. In this price range the Segway is competing with small cars or scooters which are not that limited by range, recharge or high acquiring costs.

Customer acceptance

Negative

The Segway has a radical design concept, that is not yet accepted as the dominant design because the critical mass is lacking. People who ride the Segway look goofy which creates a follower barrier if only few “eccentric” people are using it.

Meeting quality guidelines

Negative

Even if the technological concept is very good, unfortunate accidents could have attributed to the damage of Segway’s reputation in this segment. Segway Inc. has missed to counteract this by promoting the safety of the Segway. Famous examples of damaging the reputation were e.g. former US president George W. Bush has fallen from a Segway while the press was filming[1], and of course the tragedy of the British owner Jimi Heselden who has fallen down a cliff with his device.

Product Performance Level

Negative

The batteries last for around 16 – 39km and need 8 – 10 hours to recharge, which compared to todays standard electric bicycles, that are able to run up to 60-80km in distance with a recharge of 6 hours (electricbikeworld.co.uk, 2011), is quite inferior. Further, there is no common legislation for insurance, each country handles the Segway on own terms.

Those factors show that Segway Inc. is not focused on short- or long-term success of their product because the are ignoring the customer needs and therefore the market pull. Even though they heavily rely on technology push, their product is too isolated from the environment it has to function in. Guiding ourselves with the definition of innovation, ‘that it is something new with added value’ – we determine the Segway as a failure because it did not successfully commercialize on the market, therefore did not add any value, and excluded the customer in the sense that he has to adapt to the product and not that the product is catering to his needs.

2. Stages of innovation management

Segway has driven itself into a difficult position to acquire the critical mass needed to implement their transportation device on the market. There were two main issues that have hindered the market capturing:

Product development phase: Poor alignment of actions to goals during the innovation management (O’Sullivan, 2002).

The case of Segway shows that the company (in their product development phase) was concentrating on technological developments and scientific advances with the goal to target a mass market. The idea was to build this really new, technologically advanced transportation device, which would be adopted by the consumers as their ‘new’ way to get from A to B. The problem was however, that Segway has blocked out any market pull by not gaining knowledge of customer needs, market knowledge or knowledge about legitimacy issues. The effect was that Segway budgeted their product development with exaggerated beliefs of future returns on investment, which resulted in overspending on technological development that made the product expensive to purchase rather than spending the budget on their initial strategy of gaining a big customer base by trying to reduce costs of the Segway device.

Segway in its product development phase did use a technological orientation as their strategic choice, which according to the authors Zhou et al. (2005) is predestined to pursuing technical advances (technology push). The same authors identified that a market orientation has a positive impact on tech-based innovations (like the Segway is). Therefore we also suggest that Segway should apply a market orientation in order to gather knowledge about their customers and create a market pull. As Segway then entered the ‘Product in market’ phase they soon have realized that their initial customer base were not buying their devices. After facing multiple issues explained further in this paper, Segway has reoriented their strategy and are now focusing on a specific customer base, the commercial users like police, tour-operators, etc. The main disadvantages of the wrong orientation is the time they have lost to create efficiencies of scale, therefore their product still is very expensive.

2.1 Social construction and legitimation

When Segway was introduced, it could not rely on existing institutions to provide external legitimacy. This created problems and challenges for the company. In an article in The Economist in 2004, Mr Bills, the company’s CEO at that time, admitted that during the introduction of Segway, the focus was on the machine’s technology, not its value for the market.

According to Aldrich & Fiol (1994), legitimacy at the organizational level can be achieved by creating trust and by storytelling. When looking at the Segway case, legitimation at the organizational level was created. Dean Kamen, the inventor of Segway, figured 2002 would be the year that the Segway Human Transporter launched a transportation revolution. He expected the US Postal Service and police departments across the nation would overwhelm the company together with consumers from around the globe (Rivlin, 2003). After all, the Segway was not just a technically advanced innovation; it was also a green innovation (Rivlin, 2003). With these high expectations, Dean Kamen created trust on the organizational level. This indicates that on the organizational level, a lack of legitimacy was not the case. Everyone expected a lot of this new device, as can be seen by the big investors that invested in the company.

At the intra-industry level and the inter-industry level, Aldrich & Fiol suggest that collective action and negotiating with other industries are strategies to achieve sociopolitical legitimacy. In this case, Segway failed to do this. One explanation might be that the company believed so strongly in its success, that they did not realize they needed help from the industry to create legitimacy at this level. In fact, before launch, the company created so much secrecy around the product that it was often referred to in the media as ‘Ginger’. It was subject of speculation about what it might be, or do (Telegraph, 2008). They believed in their product and had no intention to take collective action to create sociopolitical legitimacy on this level. Moreover, they did not negotiate with, for instance, other green companies in the area of transportation to get a better reputation since they figured the reputation would be build automatically after the product launch. As for cognitive legitimacy, Aldrich & Fiol point out that creating convergence around a dominant design might be a strategy to create legitimacy. However, Segway did not do this, because they kept the product in secrecy as much as possible. As a result, Segway did not match the existing schemas about vehicles and transportation devices that consumers had at the time of launch.

A first big challenge was state legislation in the US. Since the Segway was a completely new type of vehicle, a discussion whether it should be driven on a road or sidewalk developed. The Segway, going 10 miles an hour on average was too slow to be safe on a road, but too fast to be on a sidewalk with pedestrians. Aldrich & Fiol (1994), suggested that one way of creating sociopolitical legitimacy, is through lobbying. This is what Segway did. Segway lobbyist tried to come up with new laws, which were specifically designed for the Segway. In order to speed op the legislation, the lobbyist gave the Segway the official name EPAMD, which stands for Electric Personal Assistive Mobility Device (Allen, 2003). Next up was convincing all 50 states to create “a regulatory framework around the Segway” that would allow buyers of the pricey device to operate it just about anywhere they wanted, including sidewalks. (Kirsner, 2003). This lobbying turned out successful. In 2006, 42 states in the US had passed Segway-friendly laws in terms of transportation, a key to gaining wider acceptance (Paton, 2006).

Another big legitimacy issue at the institutional level is the fact that insurance companies had trouble deciding how they would acknowledge the Segway through liability coverage (Hollmer, 2002). Owners are not required to provide proof of financial liability insurance for the Segway. Insurance companies have several options about how they can insure Segway, according to the Insurance Information Institute. As a result, some insurance companies may sell an umbrella policy stemming from a standard homeowners policy that will cover the Segway. Others companies, the Insurance Information Institute said, may choose to offer a general policy that covers small motorized vehicles that would be separate, like an auto policy.

Cognitive legitimacy represents the amount that is known about the innovation (Aldrich & Fiol, 1994). At the consumer level, Segway was expecting consumers to stand in line to buy a Segway. However, this turned out to be wrong. In The Economist (2004), Mr Bills acknowledges this. Mr Bills started taking a different approach to increase sales, after the first sales were disappointing. He tried making the machines easier to buy and he tried to explain to customers how a Segway could fit into their lives (Economist, 2004). Increasing the sales could be explained as a way to build cognitive legitimacy, increasing the taken-for-granted-ness of the Segway.

But consumers had more problems with the Segway. The price was too high, and they had trouble using the complex device. Therefore, training was necessary. Also, due to the insurance problems at the institutional level, consumers were worried about the safety of the Segway. In addition, because legislation on the Segway was still not clear, consumers were worried about possible restrictions after buying a Segway (Paton, 2006). Because the problems at the institutional level were not solved yet, the organization could not give the consumers clear answers on their worries, which resulted in disappointing sales. Therefore, it seems that cognitive legitimacy was obtained, but the company failed at gaining sociopolitical legitimacy, since legislation was not clear.

Pinch & Bijker (1989) suggest there are different social groups that have different influences on the artifact (invention), which can influence the legitimacy of an invention. Also in the case of Segway, such social groups exist.

For instance, Segway Enthusiasts Groups (SEGs) were introduced to increase knowledge and public acceptance of the Segway Human Transporter and to provide a resource to local owners for information and group events. There are different local groups in different areas of the US. Eventually this lead to the introduction of the SEG America organization. Another example is www.segwaychat.com, introduced in 2002, and with the intention to create a community of Segway enthusiasts who would ‘educate the public, share information, stories, and photos about the ownership experience, and promote safe and responsible gliding. Within one year more than 1400 people joined the forum.

In 2004, a Segway Enthusiasts Group in California introduced ‘Segway polo’ as a team sport. Segway polo is similar to horse polo, except that instead of playing on a horseback, each player rides a Segway on the field. The sport is getting more and more attention.

In conclusion, legitimacy at the organizational level was obtained. Moreover, the company mainly failed to gain sociopolitical legitimacy. This implies that the relationship between the successful commercialization of Segway and the level of legitimacy is negative.

2.2 Resources

In order to make a product a success, different types of resources are needed. When looking at Segway through the ‘PROFIT’ (Morris et al. 2001) approach it becomes clear that they have failed in certain areas of resources.

As far as the Physical resources, Segways’ headquarter is located in Bedford, New Hampshire. Its construction was completed in November 2001 (segway.com, 2011). This location might sound questionable as it is not the first place you think of related to a technological company. However, Manchester NH, the city next to Bedford, ranks 144 in the “Top Overall Cities for Doing Business” (inc.com, 2011)

The Segway PT (personal transporter) back in 2001 was hyped by Steve Jobs, “As big a deal as the PC” (time.com, 2011) and John Doerr, “Maybe bigger than the internet” (time.com, 2001), these Relational resources accounted positively for Segway as it generated a huge amount of publicity. It has other relationships throughout the world as it “has a worldwide distribution network of more than 250 retail points in 61 countries” (venturebeatprofiles.com, 2011).

Organizational resources; Segways’ legal structure it that of a corporation and it is a private ownership. (venturebeatprofiles.com) After years of disappointing results, Segway was acquired by Jimi Heselden in December 2009. Earlier that year Segway collaborated with GM to manufacture a vehicle “called Project P.U.M.A. (Personal Urban Mobility & Accessibility)” (xconomy.com, 2011). Recently Segway and GM/SAIC presented another concept, the “EN-V (Electric Networked Vehicle)” (gadgetwiki.com, 2011). These vehicles contribute to the green and non-polluting view that Kamen wants to carry out.

Due to the attention that Steve Jobs and John Doerr generated, many people got interested in investing in Segway. There was no shortage in Financial resources. John Doerr also said he “expected Segway would be the fastest ever to reach $1 billion in sales”. (blogs.wsj.com) As he is the venture capitalist at Kleiner Perkins Caufield & Byers, this company invested heavily in Segway. Together with other investors like DAG Ventures, Masdar Clean Tech Fund, Credit Suisse, CSFB and Northgate Capital (chubbybrain.com, 2011).

In the 2008 paper “US venture capital in robotics” by Joanne Pransky it is noted that “’robot’ companies Segway and The Insitu Group (airlines and aviation related), (…) together accounted for $58.95 million or 29.14 percent of the total dollars invested in the 15 robot companies”. (Appendix B) These investments were for the years 2005-2006. This indicates that Segway kept being an interesting product to invest in for many investors. This year’s financial statement of Segway Inc for the United States Securities and Exchange Commission reveals that the corporation is making accumulated losses from inception which now exceeds $ 36,132,000 US dollars. (Segway IV Corp – Quarterly Report August 11, 2011) “Additionally, Segway also received funding that will be used to support the continued growth of the company.” (blogs.wsj.com) Another sign supporting our statement that the company is failing to commercialize is the fact that they are still listed as a “development stage company” in the official financial statements dating back to 2001, which is on one hand resulting in a favourable taxation policy towards them but on the other hand it is showing that Segway is trying to compensate losses. (see: Form 10-Q of Segway IV Corp – Quarterly Report August 11, 2011)

Intellectual and Human resources; Segway was invented by Dean Kamen, he is the big brain behind the invention. He is specialized in technology and highly motivated towards introducing this field towards more people. Although Kamen was a very intelligent man and a great engineer, he did not study to be a manager of any kind. Kamen wanted to be as involved as possible in the whole Segway adventure. He had no experience in sales and marketing, which caused getting the Segway to the market and customer acceptance to be problematic.

Technological resources; Kamen is very active on the patent field. He has numerous patents for various products, “he has amassed more than 440 patents worldwide” (ic.galegroup.com.proxyub.rug.nl), as well as for the Segway, “You can’t get any broader than our patent” (Kemper, 2003). Even so, there was a little uproar when it turned out that Professor Kazuo Yamafuji in Tokyo had a patent for a similar invention, granted to him in 1996. (arstechnica.com) Kamen has a fierce passion for technology, in 1989 he founded FIRST (For Inspiration and Recognition of Science and Technology). (ic.galegroup.com.proxyub.rug.nl) Kamen set up this program because “his passion and determination to help young people discover the excitement and rewards of science and technology are the cornerstones of FIRST” (usfirst.org, 2011).

As can be clearly seen from the results above, Segway had no problems with generating enough financial resources to launch their product, nor did they lack the technological and relational resources. The physical and organizational resources play an important but minor part in the case of Segway. The intellectual and human resources induce a different outcome. As these kinds of resources cover a large amount of different elements it is hard stay say that Segway failed completely in this area. However, there were shortcomings in several fields like marketing and sales. As this area is strongly related to the ‘customers’ perception’ part we will conclude that resources had a positive impact on the amount of success of Segway.

2.3 Organizational form

As Powell (1990) states and as was mentioned in the literature review before, relationships take a considerable amount of time and effort to maintain and strengthen which in turn can constrain both parties ability to adapt to changing circumstances. Berchicci (2006) also notes there were three broad user categories distinguished for Segway[2]: pure recreation, fun transportation (tourists, shoppers, golfers), and professional application (by the police, postmen, people in airports and warehouses). This classification typology of the user groups is important, as it impacts the way and in which form Segway ultimately chose to operate. Despite the initial successes in terms developing the product and interest among insiders, two conflicts occasionally manifested themselves: one was the extreme secrecy measures Dean Kamen imposed on his core team and hereby effectively hampering market research and field testing and the other was the reluctance to equity sharing and stock options. Instead of accepting the latter, Kamen preferred a traditional incentive system based on salaries and occasional bonuses.

For the introduction of Segway, Kamen had put together a support network, which involved a number of strategic partners. Throughout the rest of the process this team would play an integral role and we will see how great its impact was on the commercialization of Segway. Relationships were set up with outside suppliers and manufacturers, as well as with health care companies such as Johnson & Johnson, investor groups like CSFB and other business groups, which would provide the firm with the required resources and legitimacy. After having formed this network of relationship, the main issue appeared to be how to launch the product successfully, as it had to compete with vehicles such as the bike. Because of the existence of the bicycle the Segway could easily be banned on sidewalks, limiting the usage of it to lanes or playing grounds.

Despite the theoretical upsides of the network form mentioned, in practice it turned out to constrain the company down to having a relatively low amount of options considering sustainability of the product. Being an integrated network type of form that failed to lead the product towards acceptance, we can state that the nature of an innovation is not such that economies of scale and scope are required to succeed. Also, as explained earlier, one of the key factors of success is for the organization to be flexible enough to make room for improvement and creativity regarding the innovation. This is especially the case when analysing a product innovation. A company as Segway could perhaps gain more from the market type of form as one of Segway’s main problems lies in its communication and the form the organization allows for this. In a market form the company would have had low commitment levels and the secrecy it wanted to keep could be kept. However, this could have also backfired, as the end solution would probably have been that in order to make the network form be what it’s supposed to be, Segway’s teams should have been more mature about company knowledge transfers. We can therefore state that the organizational form itself was not a bad choice for Segway, however, the company failed to communicate appropriately and was not able to maintain the important relationships, which backfired on the process development of the product. This implies the relationship between the amount of Segway’s success and the organizational form is negative.

2.4 Consumer perception

As mentioned in the literature review, there are two different ways of looking at quality; namely perceived and objective perception. Besides this, value is an important indicator of consumer perception, as it applies more to the individual itself, rather than the lower level concepts of quality. In Segway’s case there have been numerous signals that the company failed to apply in its market research. In fact, the contradiction between the firm’s perception of the product and the consumers’ is significantly large.

The initial market for the Segway consisted of thousands of corporations, both domestic and international.[3] The vision was that the Segway could provide firms with environmentally conscious, inexpensive, efficient means of transportation and commuting. The market could eventually grow to include millions of fun-seeking consumers, but with a price of around $5,000 and a heavy weight (80lbs), the consumer market would not be as easy to enter, as most leisure devices in the Segway class (scooters) are far cheaper ($300-$1,000) and weigh about 40 lbs less. We will make clear how despite the market entrance warning upfront, Segway still failed to research the market as extensively as was necessary.

The consumer groups of Segway can be classified into pure recreation, fun transportation (such as tourists, shoppers, golfers), and professional application by the police, postmen, people in airports and warehouses (Berchicci, 2006). The first group is where the major drawback in sales was seen. People did not want the Segway as much as expected, due to a difference in needs and opinions. The Segway looked stupid, uncomfortable and was way too heavy. The other group consists of government agencies and corporate clients, which have tested the vehicle, but not agreed to any bulk purchases.[4]

Graham (2010) also points out the main problem of Segway can be traced back to the consumers and their perceptions, by stating the following:

“Curiously enough, what got Segway into this problem was that the company was itself a kind of Segway. It was too easy for them; they were too successful raising money. If they’d had to grow the company gradually, by iterating through several versions they sold to real users, they’d have learned pretty quickly that people looked stupid riding them. Instead they had enough to work in secret. They had focus groups aplenty, I’m sure, but they didn’t have the people yelling insults out of cars. So they never realized they were zooming confidently down a blind alley. “

The above highlights the difference between invention, believing that you alone have come up with the perfect idea for a great product, and innovation: the on-going iterative process of going back and forth with the market to test and understand what the market wants and how to make your product meet their needs. By focusing so much on the invention, Segway missed the real opportunity for innovation, and that has caused all sorts of problems for the company. It basically failed to concentrate on the most important part of the framework. In more detail, the perceived and objective quality of the product, contradict each other, as well as the value that consumers have towards it. Consumer perspective has therefore had a negative impact on the amount of success of Segway.

3. Summary of Results

Segway’s biggest problem lies in creating legitimacy at the intra-industry level and the inter-industry level. Aldrich & Fiol suggest that collective action and negotiating with other industries are strategies to achieve sociopolitical legitimacy. In this case, Segway failed to do this. Therefore we conclude that a lack of legitimacy has a negative impact on the successful commercialization of Segway.

Following the theories of Morris et al. (2001) gives evidence that innovations need a mix of resources. (Physical, relational, organizational, financial, intellectual & human and technological resources). It is hard to say that Segway failed completely in this area. However, there were shortcomings in several fields like marketing and sales, which resulted in a disproportional distribution of resources. However, we argue that the amount of resources has no negative influence on the successful commercialization of Segway because they had most of the resources available but did not exploit them properly.

Despite the theoretical upsides of the network form in practice it turned out to constrain the company down to having a relatively low amount of options considering sustainability of the product. Being an integrated network type of form that failed to lead the product towards acceptance, we can state that the nature of an innovation is not such that economies of scale and scope are required to succeed. Therefore we can state that the organizational form itself was not a bad choice for Segway, however, the company failed to communicate appropriately and was not able to maintain the important relationships, which backfired on the process development of the product. On this basis we could not distinguish a positive nor negative influence on the overall successful commercialization of the Segway because the main flaw was not the structure itself but the communication with strategic partners. We therefore define the factor influence as moderate.

In Segway’s case there have been numerous signals that the company failed to apply in its market research. In fact, the contradiction between the firm’s perception of the product and the consumers’ is significantly large. We therefore conclude that the negative consumer perception has a negative influence on the successful commercialization of the Segway.

It is difficult to distinguish the most significant factor of those influencing the successful commercialization of Segway because they are all interdependent; therefore they also overlap in effect. In perspective of our analysis of the case study we have the impression that the most problematic issues with the commercialization had to do with the lack of legitimacy and the negative consumer perception because they created the biggest hurdles to overcome and were the most time and resource expensive. However, we did not gather enough valuable data to distinguish, which one of those two factors is more significant than the other and therefore we have to rely on further research to make a reasonable distinction.

Berchicci, L. (2006). Of bikes and men – Innovation patterns and strategic entrepreneurship in the human-powered vehicle sector. Vrije Universiteit Amsterdam, paper prepared for the workshop on Strategic Entrepreneurship: the role of Networking. July 3-4, pp. 1-36

Gartner, W. B., & Low, L. 1990. Trust as an organizing trope. Paper presented at the annual meeting of the Academy of Management, San Francisco.